Part 1 Using Resource: Figure 3-1 in Ch. 3 of Macroeconomics 1. Gross Domestic Product – Is value of how much every household and a business can produce within the United States in a year. 2.
Real GDP – The dollar amount of money made by businesses, government, and households combined. 3. Nominal GDP – GDP without taking in account other factors like inflation. It estimates current GDP so analyst can try to determine if GDP will go up or down next. 4. Unemployment Rate – Rate of home many people have applied for unemployment.
If this rate goes up, GDP will go down because citizens will not have any money to spen to buy goods or services to add to the value of GDP. 5. Inflation Rate – the rise of general prices for goods that make customers stop purchasing them, or reduce the amount that is sold. It reduces the amount of purchasing power for consumers as well as producers. 6.
Interest Rate – The rate paid by borrows for the ability to use money provided by the lender. Loans are car payments are popular investments with interest rates. Interest rate is affected by, inflation, un employment rates, and investment.Part 2 Issues of Economic Activity Households, Businesses, and the Government represent the three key elements of the United States market economy. These factors intertwine and rely on each other to interact in a variety of ways where each component benefits from the other as well as relies on each for different factors (Colander, Chapter 3, 2010).
Households supply labor and production to businesses that in return pay employment for the services. This interaction is known as the factor market. Businesses generate supplies and services that are sold to the households that in return pay for them. This factor is interaction is known as the goods markets.The US economy is also connected to the world economy through households and businesses as well.
The government holds another component to the US Economy. The government taxes households and businesses, buys goods and services from businesses, and buys labor from households. Then, with tax revenue, the government provides services to both business and households like roads, education, health care, transportation, etc. The government also supervises the interaction between households and business to ensure lawful activity (Colander, Chapter 3, 2010)..There are many factors to consider that could affect the system of the US economy and change Gross Domestic Product.
The first economic activity is the purchasing of groceries. There are many necessities in a household and many different brands and varieties to choose from. When a household or a government agency chooses to purchase an item, they generating revenue for the business supplied that item specifically. The business is then making successful profit from sales that go back into costs for producing the item and provide jobs back to households and the government.
Another economic event is a massive layoff of employees. The first objective to understand is why the layoff occurred. One conclusion could be that not enough households were buying the product or services and the business could no longer afford to employ so many people.Maybe the business made a poor decision to raise prices so the inflation went up and buying power decreased.
Now all the households who lost jobs are filing for unemployment, and can no longer afford to buy as many good and services as the used to. The government pays unemployment services to households must cut back on other services needed like roads and education. The level of GDP will drop. The last economic activity to consider is the decrease in taxes. If the government decided decrease the amount of taxes charges than there would less money available to put back into the economy where it is needed. So the money would stay in the hands of households and business to decide what the money will be spent on.
Most likely the amount of money obtained in households and business will go up, but the streets need work, education will struggle, and corruption may rise. If the government gave business and household more freedom to do decide where the extra money should go, the right decision might not be made. It is important to have government involvement so all the necessities for the success of the economy is being provided. It is important to understand how the United States Economy functions and how households, businesses and the government intertwine. It will give people a better understanding as to why growths and declines occur in the economy and how to prepare for them and future activity.
